The Kapali Carsi

Four Passover Seder questions

I would like to celebrate the Passover and Easter of my heathen readers by carrying an old tradition to my column.

Jews remember their exodus from Egypt at the Seder, which marks the beginning of Passover. During the dinner, which was also Jesus’ Last Supper, the youngest child at the table asks four questions about why this night is different from others. Being a kid at heart, I will answer four questions about why some recent Turkish economic indicators are so different.

As the intro. to my latest Hurriyet Daily News column explains, I ask (and answer) four questions on the Turkish economy. You can read the whole thing at the HDN website. I have a couple of extra points, but before that a couple of copy edit points are in order, as response to comments to the column:

Yep, “heathen” was not a good choice; since they are not pagans, Christians and Jews are not heathen. “Infidel” would have been a better choice. And yes, I know it is derogatory, as one reader noted, but that was the point. I obviously don’t feel that way against Jews and Christians, but unfortunately there are many in Turkey who do:( Finally, another reader stated that it is not universally accepted that Jesus’ Last Supper was actually a Passover Seder, so I should not have stated it as a fact. He is right; I guess I want to believe it was, as it would have connected Easter and Passover really well, but I should have inserted a “probably” there. Anyway, I am glad to see I have so careful readers- it means my econ. commentary is rather accurate- otherwise, they would have caught any mistakes/factual errors immediately:)….

Coming to the actual addendum, Q4 growth, at 1.4 percent year-on-year (yoy) came in much lower than the expected 2-2.5 percent I mentioned in the column, and growth turned out to be 2.2 percent for the whole year. I am hyperlinking J.P. Morgan’s take on the data, but a standard “sources of growth” graph explains what is going on:

As you can see, foreign demand has driven growth, as domestic demand has been dismal.  Government spending has somewhat been able to offset private consumption and investment. Finally, the low base of last year as well as the depletion of stocks call for a stronger bounce-back this year (pure math). But as the J.P. Morgan piece notes as well, the probable stock build-up this year may result in price pressures.

Here are some other interesting points on today’s GDP figures that I did not see in most of the research pieces I skimmed through today:

First, growth accounting reveals that of the roughly 3.5 percent (of GDP) decrease in the current account deficit this year, about 1.5 percent came from the fall in investment and 2 percent the rise in savings. So I wonder what will happen to the current account deficit when investment recovers this year.

Second, and related to the first point, the relationship between capital flows and growth was broken last year: While capital flows were strong, it did not translate into growth. I need to think about this and talk to friends further, but I think the key is the Central Bank’s Reserve Option Mechanism.

Third, Turkey has been stuck around $ 10,000 GDP/capita for the last few years. This makes me think “middle income trap”, but that deserves a separate post.

By the way, the GDP data were not the only disappointing figures of the day: The Turkish PMI and preliminary exports data from Turkish Exporters Association were quite low as well. This makes me believe that my belief in the economic recovery was a bit premature. The recovery will eventually come, but it will be slower and later than I originally expected. The main problem is that production seems to be lagging behind consumption…

As a side point, today’s data make it more likely that the Central Bank will be a bit tolerant of the 15 percent credit growth target. In fact, economy tzar Ali Babacan made similar remarks recently, and today’s credit data from the banking regulator don’t show a decline in credit growth.

Anyway, I plan to devote Friday’s HDN column either to the growth data or to all the economic figures of the day. If I go for the latter, I may go for “fooled on April Fools’ day” as title:)… And besides, I am already late for the Besiktas game, so I have to stop here:)…

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